Chap12gnposting - Chapter 12 Segment Reporting and...

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Chapter 12: Segment Reporting and Decentralization 1 Chapter 12: Segment Reporting and Decentralization What does decentralization “look” like? Think of it like “companies within companies” What does decentralization mean for the firm? Responsibility for decision making is spread throughout the organization Provides for appropriate decision making at each level of the business Advantages Allows lower-level mgt. to use expertise in day-to-day operations for decision making Allows top mgt. to focus on strategy Provides decision-making experience for lower-level mgt. Increased job satisfaction Provides data for evaluating mgt.’s performance Disadvantages Lower mgt. often does not have the “big” picture. Separate segments often behave independent of each other (like separate companies) rather than for the good of the entire organization. Lower level mgt.’s goals may not align with the corporation’s goals. More difficult to communicate or disseminate information among various segments Think of examples i.e. divisions within large corporation; subsidiaries associated with parent. Disney example footnote #1. What type of company (centralized vs. decentralized) would you like to work for and why? See pages 516 & 517 of the text.
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Chapter 12: Segment Reporting and Decentralization 2 How do we define responsibility centers? The segment of the business the mgt. team is able to control Cost Centers Generate costs only Accounting Legal Production Purchasing Public relations Profit Centers Generate both revenues and costs (profits) Sales Investment Centers Control investments that generate those revenues and costs Responsible for all (investments, revenues, costs) Exist at the upper levels of the organization (corporate, division, brand, etc.) Evaluated using ROI (visited later in the chapter) See pages 509 and 510 of the text. Brainstorm examples of each of the centers.
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Chapter 12: Segment Reporting and Decentralization 3 Segmental Reporting Segmented income statement: Total Seg. A Seg. B Sales $100,000 $40,000 $60,000 Less variable expenses 45,000 18,000 27,000 Contribution margin $ 55,000 $22,000 $33,000 Less traceable fixed expenses 30,000 12,000 18,000 Segment margin $ 25,000 $10,000 $15,000 Less common fixed expenses 17,000 Net income $ 8,000 What is different about this income statement from the ones we have studied thus far?
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